Lockdown caused repayment delays not be deemed default: Sebi
Securities market regulator Sebi on Monday eased default recognition guidelines for credit rating agencies in the midst of the nationwide lockdown.
In a circular, Sebi said: "In view of the developments arising due to COVID-19 pandemic and in light of the moratorium permitted by the Reserve Bank of India on loan servicing, working capital facilities etc. for three months, a need for temporary relaxations in compliance by CRAs is felt."
Accordingly, the regulator instructed CRAs not recognise any default that has occurred due to repayment delays which have been triggered by the lockdown. This would mean that CRAs would not be required to give adverse comment about a company if it delays loan payment is solely due to lockdown related operation challenges in servicing debt.
"In view of the nationwide lockdown and the three month moratorium/deferment on payment permitted by RBI, a differentiation in treatment of default, on a case to case basis, needs to be made as to whether such default occurred solely due to the lockdown or loan moratorium," Sebi said in the circular.
"Accordingly, based on its assessment, if the CRA is of the view that the delay in payment of interest, principle has arisen solely due to the lockdown conditions creating temporary operational challenges in servicing debt, including due to procedural delays in approval of moratorium on loans by the lending institutions, CRAs may not consider the same as a default event and/or recognize default."
Furthermore, CRAs timelines for rating action has also been relaxed.
"However, CRAs should endeavour to finish the exercise on a best effort basis. Such cases shall be put up for ratification by the Rating Sub-Committee of the Board of CRA," the circular read.
"Further, an extension of 30 days is being granted for making annual and semi-annual disclosures by CRAs on its website for the period ended March 2020."